Activist unleashes attack on Sardar Biglari, says he must go

A Minnesota-based investment firm that wants to oust Sardar Biglari filed a searing analysis of his stewardship of Steak n Shake late Thursday, concluding that the activist investor has sharply underperformed while pocketing outsized compensation.

Biglari seized control of Indianapolis-based Steak n Shake in 2008 after blasting prior CEO Peter Dunn and other executives in lengthy regulatory filings packed with charts casting the company’s performance in an unfavorable light.

Now, Minnesota-based Groveland Capital—which wants to oust Biglari as CEO of Biglari Holdings Inc., the San Antonio-based parent of Steak n Shake—is using the same approach to skewer Biglari.

After one damning chart, Groveland wrote: “The company’s operating performance with Mr. Biglari at the helm has been worse than that of those predecessors he so criticized in 2008!”

Groveland late last year revealed its plans to seek to oust Biglari and the rest of the Biglari Holdings board at the company’s annual meeting this spring. Last month, it offered to retreat if Biglari Holdings agreed to sweeping corporate governance changes, but the company’s board rebuffed that overture.

Biglari Holdings said in a regulatory filing earlier Thursday that its board had unanimously rejected the changes and fired off a letter to Groveland that "reinforced the conviction that the economic objective of the Company is to maximize per-share intrinsic value over the long term, as well as to reaffirm that the Board’s actions have all been in furtherance of this purpose,” the filing says.

Groveland owns less than 1 percent of the shares of Biglari Holdings—which also owns the Maxim men’s magazine, an insurance company, Western Sizzlin and a big stake in Cracker Barrel.

It’s unleashing its attack at a vulnerable time for Sardar Biglari, 37. Shares of Biglari Holdings slumped 21 percent last year—in part because of a controversial offering that allowed existing shareholders to buy more stock on the cheap. Meanwhile, Biglari Holdings faces a raft of lawsuits from franchisees accusing the company of unlawfully mandating menu prices and from investors angry over governance practices.

Several investor lawsuits take aim at a 2013 deal under which he licensed the “Biglari” name to the company for 20 years. Biglari won’t receive royalties if he remains atop the company, but if it were sold, or if he were forced out for anything but malfeasance, he’d receive 2.5 percent of sales for five years—a sum that could surpass $100 million.

In its new regulatory filing, Groveland outlined five major concerns:

— The stock price has underperformed for the one-, three- and five-year periods. While the stock appreciated 46 percent over the last five years, the S&P 500 performed far better, surging 86 percent.

— The company's businesses "have experienced a significant deterioration in their financial performance."

— Sardar Biglari has received "outsized compensation despite poor performance." He compensation topped $10.9 million in fiscal 2012 and 2013 before tumbling to just $900,000 in the latest fiscal year.

— The "Steak n Shake brand and franchisee network are at risk."

— The company's board has used poor corporate governance practices.

Groveland took particular aim at the licensing deal, which has led Steak n Shake restaurants to be rebranded as "Steak n Shake by Biglari."

The investment firm asked, "Is it reasonable to believe that adding the 'by Biglari' modifier to the venerable Steak n Shake name increases Steak n Shake brand equity? Why take the risk of tying an otherwise strong brand to another name without substantial proof that the brand would be enhanced? We have not seen that study or proof to date."

Groveland's slate of directors includes that firm’s founder and CEO, Nicholas Swenson, as well as Ryan Buckley, a director at the investment banking firm Livingstone Partners, and Jim Stryker, a 37-year restaurant industry veteran who formerly was chief financial officer of the Tennessee-based parent of the Perkins and Marie Callender’s chains.

Groveland said that if its slate is elected, the new boad will oust Biglari and appoint an interim CEO. "Our Nominees have considered more than 15 candidates and they have narrowed down the list to a select handful of very capable executives" to fill the job until a permanent CEO is appointed.